The 25% Challenge: Become a Negotiation Ninja
Image by brunkfordbraun.
This post is part 1 of 5 in our four-author series on perfect pricing and rates.
I’m going to teach you how to raise your rates by 25% right now — and get away with it — all by using the ancient arts of negotiation and knowing your price.
I can vouch for the power of these methods: by learning a few simple negotiational tricks and analytical frameworks I’ve been able to more than double my rates in the last six months — an increase of not 25%, but 100%.
Premise 1: You’re probably under-valuing yourself
Let’s take a look at the graphic from our Freelance Switch survey showing the average hourly rates that freelancers charge.
For each of those numbers, there are plenty of freelancers charging less and plenty of freelancers charging more. Let’s forget about everyone else for a moment and focus on those freelancers charging rates significantly higher than the average. Some of them will be specialists in a lucrative niche, no doubt, but most of them will be comparable in skill to you.
Here’s the honest truth: the differences in skill between you and high-end freelancers are probably too minor and technical for most clients to notice.
I want to suggest that there’s only one key difference between the middle-of-the-line freelancer and the highly-paid freelancer: freelancer #2 believed they were worth more than the average — perhaps a lot more — and asked for it boldly.
If there are other freelancers out there of comparable skill and talent earning more than you per-task or per-hour, you’re undervaluing yourself. You can use the art of negotiation to change that.
Premise 2: You’re probably afraid of what will happen
I want to set you a challenge: after reading this article, raise your rates for all future clients by %25. Take a moment to think about the implications of that.
I doubt you’re imagining a sun-drenched vacation to Thailand, a more expensive car, another 24″ monitor. In fact, you’re probably thinking: no one will hire me. Let’s face it — if you weren’t afraid of the consequences, you would have raised your rates already.
In many cases, fear is a prerequisite for self-preservation. In this case, though, it’s an unfounded fear. I want to offer you a safety net and introduce you to one very powerful negotiation tip.
The Stone-Water Combo
So-named because the strength and solidity of stone will protect you against bargainers, but your stone resolve can melt like water if the situation calls for it.
Move 1: Take your current hourly rate or price for a particular task and raise it by 25%. This will be the rate you offer your next prospect.
Move 2: State your rates with rock solid language. “My flat rate for this kind of work is $250,” or “The lowest rate I can give you on that kind of work is $80 an hour,” or the social-proof option: “I charge all my clients $1,200 for a full re-design.”
Why: If clients sense your initial price isn’t firm some will try to bluff you by offering a lower rate — not because they can’t afford your rate, but because they sense you’d accept work for less. It’s not too difficult to tell the difference between a bluffing client and a client who genuinely can’t afford your rates. The top 3 signs you should look for:
- They don’t burn any bridges. Statements like: “I can’t afford your price at the moment,” or “I don’t have that kind of money” are dead-ends for the prospect — they close of the possibility of accepting your original price if their counter-offer is rejected. Dead-end phrases usually indicate the client is genuine in not being able to afford your rates. Open-ended phrases like: “I was thinking more along the lines of,” or “I was actually hoping for a little less,” and “What about…” (or any counter-offer with no explanation) should indicate you’re being bluffed. Clients who genuinely can’t afford your rates will almost always make dead-end statements because, to their mind, this makes you more likely to accept their counter-offer.
- They use tentative language. “Thinking,” “hoping,” “aiming” and other tentative words are signs that the prospect is trying to get a bargain. They’re just too easy to back out of.
- They propose insignificant discounts. The difference between $950 for a web design and $1,000 isn’t the difference between prosperity and bankruptcy. Counter-offers with less than a 15% discount on your original price almost always mean the client is only out to save a few dollars at your expense.
Move 2: If you sense you’re being bluffed, re-state your first offer as non-negotiable. If a client genuinely can’t afford your rates and you need the work, offer them a one-time only 20% discount. That’s right — you’ll still end up making rates you once felt to be your premium. If you don’t need the work and don’t want to discount your rates, let the client know that you’re there when they need you, but you can’t charge any less at this time.
Why: Bluffers will almost always accept your initial rates. A chunky discount works wonders on clients who can’t afford your premium rates because they feel like they’re getting a super-deal and you’re still making better money than you were before. That’s your safety net — the reason you shouldn’t be afraid to raise your rates.
If the prospect declines your 20% discount they probably weren’t worth your time anyway!
How it works: this strategy acknowledges the multi-layered nature of price negotiations. Any serious prospect won’t shut the book on you because you offer rates above what they were hoping for. Instead, the next stage of negotiations will be triggered: the counter-offer. It’s a cushion that allows you to approach the process with a stone resolve.
Eye of the Prospect
So-named because this method requires that you view negotiations from the perspective of your sparring partner.
Move 1: Determine whether your prospect is a ‘hobbyist’ or an ‘entrepreneur’ (both used categorically rather than literally). You can accomplish this with a simple question: will the work I’m being asked to do help the client to profit in a tangible way?
Why: entrepreneurs tend to be confident that they’re spending money to make money. In their eyes, that ad-supported web app they want you to develop is probably going to make thousands. People generally don’t invest in a project they expect to have a miniscule profit margin. Another factor is that they tend to be more impatient than hobbyists — after all, there’s money to be made.
The overall point I’m making is that entrepreneurs are easier with their money because they see business expenses as an investment in future profit. Hobbyists tend to be much more careful with how they spend their money on freelancers. For that reason, you need a different price scheme for each prospect category.
Move 2: If your prospect is a hobbyist, charge them what the work is worth to you. How much would it take to make you feel good about doing it? You can use your hourly rate +25%. You’ll find that those who do refuse your rates will usually do so for genuine reasons rather than trying to falsely bargain you down.
Why: hobbyists simply have less money to spend on this stuff than entrepreneurs do.
Move 3: If your prospect is small business, a company or an entrepreneur, consider the true value of your work from their perspective. A killer landing page might take you two hours, but if the business relies on that landing page to sell their product, your work is probably worth a lot to them. If they believe it’s going to help them sell 10% more products a week, you can see that charging $100 for your work is not nearly enough (even if your standard hourly rate is $50).
Why: Entrepreneurs tend to treat business expense funds like Monopoly Money. Anyone who has splurged on home office “essentials” can relate.
Premise 3: Time does not correlate with your value
Too many freelancers charge standard hourly rates for work which stands to make the client thousands in profit.
Three hours of search engine optimization with the potential to see a 20% increase in customer traffic is not worth 3 x $70 an hour. It’s worth a lot more than that — and the client knows it.
Mainstream society (and I try to use the phrase without sounding like a cultist) has ingrained in us the notion of charging for what our time is ‘worth’, rather than on the value of what we do. It’s a mentality which needs to be shrugged off and discarded.
Take the 25% challenge
The next time a new prospect contacts you with an enquiry on work, use the Stone-Water Combo and Eye of the Prospect combination to propose rates at least 25% higher than you’re charging right now. The worst-case scenario with a serious, genuine prospect is that they’ll make a counter-offer or allow you the opportunity to do so. Any client who doesn’t respond at all wasn’t serious in the first place. Even in the very worst-case scenario you’re no worse off — possibly better off — than you are now.
Try it and you might be amazed with the results.
If you’re motivated to try the 25% challenge, let us know in the comments!